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Banksia investors get first payment

Lucy Battersby

Banksia Securities went into receivership on October 25 owing $660 million to about 15,000 investors. Photo: Wayne Taylor

Investors owed $660 million by the failed Banksia Securities are expected to get at least half of their investment back and have received a pre-Christmas first payment.

Receivers McGrathNicol on Friday made the first distribution of 20 cents in the dollar to debenture holders, predicting they will receive in total between 50 and 65 cents in the dollar.

"We hope the first distribution provides some initial relief to investors following the failure of BSL," receiver Tony McGrath said in a statement.

"The loan recovery processes we have put in place aims to ensure further distributions are paid as quickly as possible."

A further repayment of five to 10 cents in the dollar is expected by June 30.

Banksia Securities, a subsidiary of Kyabram-based non-bank lender Banksia Financial Group, went into receivership on October 25 owing $660 million to about 15,000 investors, many of whom live in regional Victoria.

Investors in a second failed Banksia Financial Group fund, Cherry Fund Ltd, are expected to get back a total of 55 to 70 cents in the dollar, but are not getting an immediate distribution.

The receivers have blamed the companies' failure on factors including a general reduction in property values, difficult credit market conditions, inadequate provisioning in the loan books and a mismatch between the timing of debentures due for repayment and the recoverability of borrowers' loans.

"Our review of the companies' loan portfolios is continuing, however, our initial views are that loan impairments are significantly understated and consequently, there will be a shortfall to debenture holders," a McGrathNicol report said.

"It is expected that the companies' loan portfolios will be realised through a combination of refinancing, repayment, loan portfolio sales and enforcement action."

The receivers are also looking at potential legal action that could lead to an increased return for investors, adding they are liaising with the Australian Securities and Investments Commission and other government departments in their review of the companies.

McGrathNicol said both Banksia Securities and Cherry Fund reported profits in recent years, but as certain loans were "non-performing" for some time and provisions were insufficient, both companies and in particular Banksia Securities most likely incurred substantial losses in recent years.

Banksia Securities had offered investors high interest on debentures and lent their funds out as mortgages or commercial property loans.